New outlook on stock and yield needed from retailers

Consumers expect retailers to have their stock organised properly and want products to be available relatively quickly in every channel. They also expect to be able to decide when and where their online purchases will be delivered. However, the organisations and processes of most retailers date from the days when online shopping did not yet exist, and it often takes a long time for products that have been returned to be re-added to the stock lists. The result is that many products are unnecessarily listed as out of stock, which is not what the retailer wants. Developing a cross-channel strategy demands a new way of looking at the concept of yield and managing stock, and the best solution appears to be using a single integrated stock list. This is the conclusion that ABN AMRO presents in a report entitled The Commercial Importance of Logistics in Retail, published earlier this week (Dutch only).

Online purchases returned twice as often as purchases from brick-and-mortar shops

The strength of brick-and-mortar shops lies in the certainty that they offer consumers about the product’s model, measurements and fit. The risk of buying an unsuitable product is many times higher with online shopping. For example, the percentage of online purchases that are returned is more than twice the corresponding figure for brick-and-mortar shops. Annually 66 percent of online buyers send an article back; processing these returns costs consumes large amounts of time and money. With many of the products taking too long to be re-added to the stock list, the possibility increases that a customer will find their item listed as out of stock. Retailers would benefit greatly from avoiding this situation: 4 out of 5 customers at brick-and-mortar shops turn to another seller if the product is unavailable, and listing an item as out of stock loses the retailer online shoppers immediately. Retailers need to focus more on stock optimisation. Not only will this help reduce the high cost of returns, but proper managing the retailer’s operating capital will also mean that less money is tied up unnecessarily in stock. The result: improved cash flows, faster delivery times and greater customer satisfaction.

Speed less important than delivery at the consumer’s preferred time

Most consumers prefer to have their online purchases delivered to their homes within 2.5 days. This timeframe offers opportunities not only for a more efficient process, but also for more customer-friendly logistics. In the present situation, it is all too common for logistics companies to find themselves unable to deliver because the consumer is not at home, or in the best case scenario the parcel is left with the neighbours. If the latter option is not available, a startling 30 percent of all parcels go back in the delivery van. The costs resulting from non-delivery are tremendous. Although improving the likelihood of completing the delivery presents a major challenge, it also represents an opportunity. The customer should be in control of when and where they want their parcel delivered. Using alternative delivery locations – for example collection points at Albert Heijn, Post.nl and Kiala – is a useful solution. Another solution is delivery to frequently visited locations, such as railway stations and petrol stations. More and more retailers are offering the option of Click & Collect: order online, collect in the shop. The result is that products are available quickly and the costs of handling and shipping are lower. Sales are also boosted as items are less frequently listed as out of stock.

The decisions facing retailers

Many brick-and-mortar retailers are feeling the pressure on their traffic: not only because the online channel is gaining in importance, but also because cross-channel buyers are rapidly increasing in number. Sales are increasingly shifting to online, and shop floor productivity and stock turnover are under pressure. However, many retailers have yet to reorganise their operations to optimally seize the opportunities that the online channel offers consumers. “Retailers are struggling with the question of how to adapt their logistics to meet the preferences of demanding consumers who do not think in terms of channels. The best solution seems to use a single integrated stock for all channels, which should moreover be accessible to consumers in real time. Retailers should position products and product groups with high turnover rates at the lowest possible position in the supply chain: locally in their shop. Logically, products and product groups with low turnover rates should be placed high in the supply chain, at the retailer’s distribution centre or at a partner. The most important decision is whether the retailer wishes to realise its own independent strategy for online and brick-and-mortar sales, or prefers to team up with other parties, explains Chris Meijers, Retail Sector Banker at ABN AMRO.